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Bozzuto Construction President Mike Schlegel on Keeping Construction Costs Down

Greetings! My name is Mike Schlegel and I am president of Bozzuto Construction Company. I am honored that Tom asked me to contribute to this blog.

For my first entry, I thought I would share with you the details of a recent press interview, because I think it’s relevant and timely (and conveniently, the perfect length for a blog post).

BUILDER Magazine has a regular feature titled “Jump Ball”, in which three builders are asked to respond to a question of the month. This particular month asked, “What is your company doing to keep construction costs down?” Here was my response.

At Bozzuto, we take pride in the long-term relationships we’ve built and we always prefer to work with our longtime partners. However, there are times when we realize we cannot get lower prices from them. Thus, courting new subcontractors and suppliers when needed has been one way we’ve been able to keep costs down in our market focus of urban infill and mixed-use multifamily developments.

We have seen prices rise about 5-6% from the bottom of the recession, and while there have been some material price increases caused by higher fuel prices, I believe this is due primarily to subcontractors and suppliers attempting to get some margin back into their bids after a couple of years of barely breaking even.

I don’t think there is much, if any, room for subcontractors to further cut their prices. Subcontractors are struggling with the arguably deepening recession in home building and their failure to keep their doors open will put upward pressure on prices, which won’t be good for builders or ultimately, land sellers and consumers, in the long run.

I anticipate that we’ll see another 2-4% in price increases in the next six months in the Washington/ Baltimore multifamily housing market. To the extent subcontractors and suppliers attempt to go beyond this point, others will backfill the market with more competitive numbers. We will continue to look at expanding our players, mixing them into our existing pool of trusted subcontractors and suppliers, to ensure we get the quality we demand at a price that is competitive.

2 Responses

Thank you for giving us some insight into the changing of the construction climate in the area. From some of my experience and research I know that Bozzuto has made sure to include certain elements of sustainability into their buildings. Given the progressive push for sustainability in the Greater Washington area, how much do you think construction costs will increase (if at all) given this new phenomenon?

The good news is that the cost premium for building sustainable projects is decreasing. In many cases, building to a base level LEED certification costs only a few percentage points. I believe that this is due to the industry adapting to the need and often requiment to build sustainable projects. It has become somewhat mainsteam – sort of like the cost of a flat panel television. When they first arrived to the market, they were very expensive.

That said, there is certainly a premium when a much higher standard is desired, like LEED Gold or Platinum.

To answer your question, the premium to build sustainable projects has dropped and will likely continue to do so – as long as the sustainable bar is not raised too much in a short period of time.